5.9 Fringe Benefits

• Library: Corporations and Partnerships in Virginia (Virginia CLE) (2016 Ed.)

5.9 FRINGE BENEFITS

5.901 In General. Another form of compensation is the "fringe benefit." Fringe benefits take many different forms. If the tax treatment of a fringe benefit is expressly provided for in another section of the I.R.C., then the rules outlined in this paragraph will not apply. In general, an employer-provided fringe benefit is taxable to the employee unless it qualifies as (i) a no-additional-cost service; (ii) a qualified employee discount; (iii) a working condition fringe benefit; (iv) a de minimis fringe benefit; (v) a qualified transportation fringe; (vi) a qualified moving expense fringe; (vii) qualified retirement planning services; or (viii) a qualified military base realignment and closure fringe. ⁴⁷⁶ Special rules apply to on-premises gyms, demonstration automobiles used by automobile salesmen, parking, and on-premises eating facilities. While some of these benefits can be realized only by employees of large employers, others may be available to small employers depending on the business of the small employer. Even fringe benefits are subject to nondiscrimination requirements, which will be noted throughout the discussion.

5.902 Qualified Transportation and Parking Expenses. ⁴⁷⁷ The Transportation Equity Act for the 21st Century (the Transportation Act) ⁴⁷⁸ expanded the transportation fringe benefit under I.R.C. § 132. The expanded benefit allows employers to save FICA taxes and to provide income and FICA tax savings for employees. Employees may make pretax salary reduction contributions for qualified transportation expenses and qualified parking. Qualified transportation benefits include transit passes for carriers, such as buses and subways, and costs for commuting in a commuter highway vehicle that is used at least 80 percent of the time for commuting and seats at least six people.

The permitted tax-free dollar amount in 2016 is $130 for qualified transportation expenses and $255 for qualified parking; these amounts are automatically adjusted for future inflation.

While qualified transportation expenses are not includible in gross income or subject to employment tax, they do constitute compensation for purposes of determining the contribution limits of a defined contribution

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plan. ⁴⁷⁹ Thus, an employee's qualified transportation expenses may increase the amounts that may be contributed to a defined contribution plan on behalf of that employee.

5.903 No-Additional-Cost Service. ⁴⁸⁰ A no-additional-cost service is any...